University Management Accounting Report: Software Cost Analysis ACC305

This report analyzes a recent article from The Wall Street Journal concerning management accounting issues related to software purchases by companies. The article highlights the increasing software spending, driven by data analytics and cloud computing, and the lack of planning and awareness regarding software assets. It discusses the inefficiencies arising from poor software asset management, including redundant software purchases and the difficulty in tracking virtual assets. The report emphasizes the importance of communication between departments, integration of existing software structures, and the shift towards software-as-a-service models. It also underscores the role of management and cost accounting in correctly accounting for software spending and identifying appropriate software investments. The report suggests the use of capital budgeting tools and periodic reviews by the board of directors to improve software cost management, emphasizing the need for accurate information on software costs and returns to facilitate informed decision-making. The report concludes that there is significant scope for improvement in management accounting practices to effectively manage software costs and maximize returns on software investments.

Running head: MANGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Authors Note:

1
MANAGEMENT ACCOUNTING
Memorandum
To: The Manager, XYZ Accounting Firm.
From: (Name of the student)
Ref.: Evolution of a recent news article on specific management accounting problem.
On August 16, 2018 an article with the heading how to avoid software sinkhole was published in
The Wall Street Journal to evaluate the ever increasing software purchases by the companies for
management accounting and accounting as a whole. The growth in data analytics has been a
constant over the last few years with ever expanding cloud computing. As a result the software
purchasing budgets of companies have increased by multiple folds. The article discusses the lack
of knowledge and planning on the part of the business organization while acquiring software for
business. In fact businesses are often unaware about the software assets resources, licenses,
patents and other assets they control and how to make optimum use of these resources (Cloud
Computing and Its Advantages, 2016).
Deloitte has recently performed a software assessment of 25 companies around the globe and
have found out that many companies are unaware of different software assets they have in their
controls. In fact lack of management of software assets in these organization have contributed to
the ever increasing spending on software acquisition without much benefit. As high as 25% of
the annual maintenance spending can be saved if the software assets are properly managed by
business organizations. Substantial amount of cash can be saved by business organizations with
proper management of software assets (Hard choices for software spending (investment in
enterprise software by cash-strapped US manufacturing companies), 2011).

2
MANAGEMENT ACCOUNTING
One of the biggest reasons for the inability of business organizations to make effective use of
software is due to the inherent difficulty in tracking the software. The very nature of software is
such that it is difficult to track the software within business organizations. The tangible assets
such as plant, equipment, machinery and other such assets are quite easy to account and physical
counts can be maintained easily. However, the existence of software is virtual and hence, it is
relatively difficult to account for these. It is extremely difficult to quantify technology across
enterprise due to the inherent limitation of the asset (Anon, 2019).
The lack of communication is one of the issues identified for the inability of the business
organizations to correctly account for the software. Generally an organization has number of
different departments which in most of the cases operate independently. The lack of
communication between these departments within an organization resulting in company buying
redundant and unnecessary software. Integration of company’s existing software structure is key
to the successful management of software assets within an organization thus, efforts shall be
made in buying software and other assets to integrate the existing software structure within an
organization (Mackie and Oss, 2011).
Companies are now moving towards signing software-as-a-service. This is further complicating
the software structure with unnecessary agreements being created as a result of signing software-
as-a-service. As a result the companies ending up spending unnecessarily huge amount of funds
on acquiring software which are not contributing the successful development of software
structures within the companies. According to Erwin Yuen, the managing director of Deloitte
Touch & LLP companies often end up using merely 40% of the resources it brought as far as
software is concerned. Thus, wasting huge amount of money on unnecessary software that are
often not even used.

3
MANAGEMENT ACCOUNTING
It is also the inability of cost and management accounting within an organization to account for
the spending on software correctly. Identifying the proper software and investing in these
software only is also responsibility of management accounting. Cost and management
accounting is mainly concerned with effective cost management of an organization. Number of
large companies have found to be inefficient as far as spending and acquisition on software are
concerned. Necessary accountability of software present with an organization and their use shall
help the management to reduce substantial amount of funds. Proper accounting system in place is
also essential to provide correct information as to the amount spent on different software assets
and the return from these assets (Mobile Cloud Computing and Its Effectiveness in Business
Organizations, 2019).
The role and responsibility of management and cost accounting is not only limited to recording
transactions in the books of accounts. The scope of management accounting is significantly large
and thus, mere recording of financial transactions in the cost sheet is merely one of the important
elements in costing and management accounting. The management accounting is expected to
provide the management with important and useful information about the cost of different assets
and their usefulness to an organization. In fact acquisition of assets shall only be permitted if the
expected return from such assets are significant. The computation of expected cost of acquisition
of asset including software acquisition and the expected return on such investment are calculated
in management accounting. The inability of management accounting to provide useful
information to the management of business organizations about the cost and expected benefits of
investing in different software assets is definitely relatable from this article.
Management accounting must be used throughout an organization to record the acquisition of
different software. The expected acquisition price and expected return both are to be estimated

4
MANAGEMENT ACCOUNTING
before acquiring any software. Thus, use of capital budgeting tool in this regard shall be
extremely helpful in determining the desirability of acquisition of different software. The tool of
capital budgeting shall be used before taking a decision on acquisition of software or for that
matter any other asset which have significant value to the organization (BİLİR and DÖŞEYEN,
2018).
The board of directors of the large corporations must conduct periodic review of software and
their usage within the organizations to determine whether there is any necessity to acquire any
other software. Proper accounts must be kept provided to the management as to the use of the
software which are already there within the organization. Thus, it is clear that there is significant
scope of improvement in management accounting within an organization correctly account for
the cost of software and return on the software to an organization to take important decision in
relation to the same.
Dated: 20th May, 2019.

5
MANAGEMENT ACCOUNTING
References:
Anon, (2019). How to Avoid the Software Sinkhole. [online] Available at:
https://deloitte.wsj.com/cfo/2018/08/16/how-to-avoid-the-software-sinkhole/ [Accessed 20 May
2019].
BİLİR, C. and DÖŞEYEN, A. (2018). OPTIMIZATION OF ATM AND BRANCH CASH
OPERATIONS USING AN INTEGRATED CASH REQUIREMENT FORECASTING AND
CASH OPTIMIZATION MODEL. Business & Management Studies: An International Journal,
6(1), p.27.
Cloud Computing and Its Advantages. (2016). International Journal of Science and Research
(IJSR), 5(6), pp.1821-1853.
Hard choices for software spending (investment in enterprise software by cash-strapped US
manufacturing companies). (2011). Strategic Direction, 27(5), pp.14-32.
Mackie, J. and Oss, M. (2011). Building Strategic Business Partnerships With Software Vendors:
A Best Practice Model For Behavioral Health & Social Service Organizations. Review of
Business Information Systems (RBIS), 12(4), pp.17-19.
Mobile Cloud Computing and Its Effectiveness in Business Organizations. (2019). Information
and Knowledge Management, 2(5), pp.12-37.